Clause 71 - Review of DST

Part of Finance Bill – in the House of Commons at 3:15 pm on 1 July 2020.

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Photo of Chris Evans Chris Evans Labour/Co-operative, Islwyn 3:15, 1 July 2020

I rise to support amendment 18 on the digital services tax, and I will focus my comments on the pressures faced by businesses on high streets. The coronavirus crisis has brought into sharp focus the issues that high street businesses have faced over the past decade. Primarily, those include outdated and confusing business rates, sky-rocketing rent costs, and competition from the internet and out-of-town shopping centres.

Last year I visited Tidal’s Store, a furniture retailer located on Blackwood high street in my constituency. It told me that shops at the top of the high street are charged business rates at £300 per square metre, those in the middle are charged £310, while further down the rate is £320. Ironically, those charged the highest rate overlook a business park that contains many large chains that are charged only £60 per square metre. The council agrees that is unfair, but it cannot do anything because it only collects the rates. When queried, the Valuation Office Agency hides behind byzantine rules that it says are set by central Government and are completely in order.

Since lockdown, the high street has been on life support. Independent businesses have faced uncertainty, and despite help with the furlough scheme and support grants, they have had to find innovative ways to stay afloat amid the pandemic. Household names such as Cath Kidston, Oasis and Warehouse have announced the permanent closure of their stores, and Debenhams, once a staple of every major town centre, has announced a string of further store closures as it enters administration.

The pandemic has changed the shopping habits of Britain, with supermarkets and in particular online retailers being the biggest beneficiaries of lockdown. However, when the supermarket shelves were empty, and when online retailers sold out of basic essentials and items such as hand sanitisers, the local corner and high street shops came to the rescue. Local restaurants and cafes helped to feed those in need in the community, and provided food and discounts for key workers during the pandemic. Those businesses stepped up to the plate for us, and the Government have a duty to step up for them.

Many of those businesses are family-owned and run, and employ local people. They pay rent, meet their business rates, and play by the rules. All they ask for is a level playing field. The question that must be asked—this goes to the heart of the amendment—is why large multinational companies such as Amazon, which often undercut our independent shops, are allowed to pay lower tax rates than the stores on our high streets.

Online businesses have lower property costs, due to being based out of single warehouses or offices. They are also able to domicile their businesses in tax havens. Meanwhile, our struggling local businesses have to pay extortionate business rates and rents for a spot on the local high street. In many cases that is more than businesses can afford, and thus they find themselves in debt and facing closure. How are small and medium-sized businesses expected to compete with large, multinational retailers or the online behemoths of fast fashion brands, when the financial odds are so stacked against them?

Large multinational conglomerates pay very little corporation tax in the UK. Research conducted by TaxWatch UK suggests that the UK is losing up to £1.3 billion in corporation tax from five of the biggest US technology firms each year. This is not only an issue for the UK. Across the world, these corporations are exploiting gaps in countries’ tax laws to avoid paying more tax. Worst of all, this base erosion and profit shifting has the most detrimental impact on developing countries, which rely on corporate tax more heavily than others to sustain their economies.

Although the digital services tax would go some way to making up for that £1.3 billion loss in corporation tax, it is not anywhere near enough. As my hon. Friend Bridget Phillipson said from the Front Bench, it is estimated that the digital services tax will produce only £440 million annually. That is why it needs to be reviewed every year. That is what amendment 18 would do, and I hope that the Government adopt it.

However, like my hon. Friend, my support for the tax is qualified. My concern is that it will be the consumer who ultimately pays it. What measures will be put in place to ensure that companies do not offload the tax on to shoppers in order to avoid paying it from their own profits? Amazon has already been open about this matter and increased its costs for the small online businesses that sell and deliver through its platform. That means that the customer, in turn, pays more, with Amazon seeing no difference in its profits as a result of the tax. It is time that those who operate in this country paid their fair share of tax in this country.

The amendment for a fair taxation system in regard to the digital services tax is welcome. The data could be provided by businesses subject to the tax, and country-by-country reporting would better equip Governments who want to identify and tackle tax avoidance schemes in their country. The OECD worked with the G20 to develop this, and it is high time that the Government implemented this measure right here in the UK.

That said, the belief that imposing this tax is some sort of silver bullet to cure the high street of all its ills is misguided. If we are serious about rejuvenating our high streets, particularly after the coronavirus pandemic, alongside this tax there needs to be a clear, coherent strategy to save our high streets. That must include immediate reform of business rates that is fair, transparent and open to appeal. I also urge the Government to devolve business rates to local government so that it can set rates according to local economic conditions. Equally, we need to address parking, although I think that is a matter for another day.

In essence, the reason I support amendment 18 and urge the House to do the same is that the lockdown and the closure of non-essential shops has allowed online retailers to make hay while British businesses in our town centres and on our high streets face grave uncertainly. There is still no vaccine for covid-19, which means that those businesses that can open will be able to operate only in a limited manner, impacting sales and profits, and many more businesses will have to stay shut indefinitely. Without help, this nation’s once proud boast that Britain is a nation of shopkeepers will become, like many of our big-name stores, a thing of the past.